For much of this year, the drug industry has been in an unenviable place -- the investor's doghouse.

There have been persistent fears of price pressures and nasty surprises, such as Merck's (NYSE:MRK) withdrawal of Vioxx. In this cloud of negativity, it is especially nice to see a company doing well -- and that is the case right now with Protein Design Labs (NASDAQ:PDLI).

PDL reported third-quarter earnings yesterday and, for the second time this year, raised revenue guidance for 2004. Investors live in fear of the unexpected, so it's always a pleasant surprise when a company reports an improved outlook. Full-year revenue is expected to come in between $93 million and $95 million, which would be up 40% over last year's revenues of $66.7 million.

The catalyst for this jump has been increasing royalty payments from Genentech's (NYSE:DNA) drugs, in particular Avastin. This rosy trickle-down scenario was something I wrote about back in July.

Another bit of good news is on the horizon with the looming approval of Biogen IDEC (NASDAQ:BIIB) and Elan's (NYSE:ELN) Antegren for the treatment of multiple sclerosis. The FDA should release its decision in the coming weeks, and odds are that Antegren will get the green light. If so, it's almost certain to become a blockbuster, and that bodes well for PDL, since the company will receive royalties on Antegren sales. If Antegren is indeed approved, that will ensure continuing top-line growth for the next several years.

This royalty stream is becoming quite lucrative, and it serves as a bridge that will get the company to the point where it can launch its own drug in the 2007/2008 time frame. The first major product will very likely be Nuvion for the treatment of severe ulcerative colitis. That's another drug worth watching.

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Fool contributor Charly Travers does not own shares of any company mentioned in this article.

Charly recommended Protein Design Labs in Motley Fool Rule Breakers newsletter. Find out what else he likes by taking afree trial.